UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2004
or
Commission File Number: 0-16471
First Citizens BancShares, Inc
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
(919) 716-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes x No ¨
Class A Common Stock—$1 Par Value—8,756,778 shares
Class B Common Stock—$1 Par Value—1,677,675 shares
(Number of shares outstanding, by class, as of August 4, 2004)
INDEX
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2004, December 31, 2003, and June 30, 2003
Consolidated Statements of Income for the three- and six-month periods ended June 30, 2004, and June 30, 2003
Consolidated Statements of Changes in Shareholders’ Equity for the six-month periods ended June 30, 2004, and June 30, 2003
Consolidated Statements of Cash Flows for the three- and six-month periods ended June 30, 2004, and June 30, 2003
Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
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PART II. OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
Issuer Purchases of Equity Securities. The following table contains information regarding repurchases by BancShares of shares of its outstanding Class A common stock during the quarter ended June 30, 2004. BancShares did not repurchase any shares of its Class B common stock during that quarter.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(a) Total number
of shares
purchased (1)
(b) Average
price paid
per share
(c) Total number ofshares purchased as partof publicly announced
plans or programs
(d) Maximum numberof shares that may yetbe purchase under the
Month #1:04/01/04 through 04/30/04
Month #2:05/01/04 through 05/31/04
Month #3:06/01/04 through 06/30/04
Total
Unregistered Sales of Equity Securities. On May 12, 2004, and in the course of completing a purchase of shares of BancShares’ Class A common stock offered to it by a broker, management realized that it inadvertently had exceeded a volume limitation adopted by it with respect to BancShares’ purchases of its own equity securities. In an effort to reverse a portion of the purchase transaction in order to stay within the limitation, BancShares resold an aggregate of 1,723 of those shares on the same date as the purchase for an aggregate of $191,082.25 in cash. That transaction was made on the open market without registration under the Securities Act of 1933.
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Item 4. Submission of Matters to a Vote of Security Holders
On April 26, 2004, at the Annual Meeting of Shareholders of Registrant, the shareholders considered the election of directors. The shareholder vote regarding the election of the nominees for Board of Directors was:
Nominee
J.M. Alexander, Jr.
C.H. Ames
V.E. Bell, III
G.H. Broadrick
H.M. Craig, III
H.L. Durham, Jr.
L.M. Fetterman
F.B. Holding
F.B. Holding, Jr.
L.R. Holding
C.B.C. Holt
J.B. Hyler, Jr.
G.D. Johnson
F.R. Jones
L.S. Jones
J.T. Maloney, Jr.
R.T. Newcomb
L.T. Nunnellee, II
R.C. Scheeler
R.K. Shelton
R.C. Soles, Jr.
D.L. Ward, Jr.
Item 6. Exhibits and Reports on Form 8-K.
4
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
(thousands, except share data)
June 30#
2004
December 31*
2003
Assets
Cash and due from banks
Overnight investments
Investment securities held to maturity
Investment securities available for sale
Loans
Less reserve for loan losses
Net loans
Premises and equipment
Income earned not collected
Other assets
Total assets
Liabilities
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Long-term obligations
Other liabilities
Total liabilities
Shareholders' Equity
Common stock:
Class A - $1 par value (8,756,778; 8,758,670; and 8,758,670 shares issued, respectively)
Class B - $1 par value (1,677,675 for all periods)
Surplus
Retained earnings
Accumulated other comprehensive income
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying Notes to Consolidated Financial Statements.
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Consolidated Statements of Income
(thousands, except per share data; unaudited)
Interest income
Investment securities:
U. S. Government
State, county and municipal
Dividends
Total investment securities interest and dividend income
Total interest income
Interest expense
Deposits
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Service charges on deposit accounts
Cardholder and merchant services income
Trust income
Fees from processing services
Commission income
ATM income
Mortgage income
Gain on sale of branches to a related party
Other service charges and fees
Securities gains
Other
Total noninterest income
Noninterest expense
Salaries and wages
Employee benefits
Occupancy expense
Equipment expense
Total noninterest expense
Income before income taxes
Income taxes
Net income
Other comprehensive income (loss) net of taxes
Unrealized securities gains (losses) arising during period
Less: reclassified adjustment for gains included in net income
Comprehensive income
Average shares outstanding
Net income per share
6
Consolidated Statements of Changes in Shareholders' Equity
(thousands, except share data, unaudited)
Class A
Common
Stock
Class B
Retained
Earnings
Accumulated
Comprehensive
Income
Shareholders'
Equity
Balance at December 31, 2002
Redemption of 35,999 shares of Class A common stock
Redemption of 950 shares of Class B common stock
Cash dividends
Unrealized securities gains, net of deferred taxes
Balance at June 30, 2003
Balance at December 31, 2003
Redemption of 1,892 shares of Class A common stock
Unrealized securities losses, net of deferred taxes
Balance at June 30, 2004
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Consolidated Statements of Cash Flows
OPERATING ACTIVITIES
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of intangibles
Deferred tax benefit
Change in current taxes payable
Depreciation
Change in accrued interest payable
Change in income earned not collected
Origination of loans held for sale
Proceeds from sale of loans held for sale
Gain on loans held for sale
Net amortization of premiums and discounts
Net change in other assets
Net change in other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES
Net change in loans outstanding
Purchases of investment securities held to maturity
Purchases of investment securities available for sale
Proceeds from maturities of investment securities held to maturity
Proceeds from maturities of investment securities available for sale
Net change in overnight investments
Dispositions of premises and equipment
Additions to premises and equipment
Purchase and sale of branches, net of cash transferred
Net cash used by investing activities
FINANCING ACTIVITIES
Net change in time deposits
Net change in demand and other interest-bearing deposits
Net change in short-term borrowings
Originations of long-term obligations
Repayments of long-term obligations
Repurchases of common stock
Cash dividends paid
Net cash provided by financing activities
Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
CASH PAYMENTS FOR:
Interest
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized securities gains (losses)
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(Dollars in thousands, except per share amounts)
Note A
Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
In the opinion of management, the consolidated financial statements contain all material adjustments necessary to present fairly the financial position of First Citizens BancShares, Inc. as of and for each of the periods presented, and all such adjustments are of a normal recurring nature. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the 2003 First Citizens BancShares, Inc. Annual Report, which is incorporated by reference on Form 10-K. Certain amounts for prior periods have been reclassified to conform with statement presentations for 2004. However, the reclassifications have no effect on shareholders’ equity or net income as previously reported.
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Note B
Operating Segments
BancShares conducts its banking operations through its two wholly-owned subsidiaries, First-Citizens Bank & Trust Company (FCB) and IronStone Bank (ISB). Although FCB and ISB offer similar products and services to customers, each entity operates in distinct geographic markets and each entity has a separate management group. Additionally, the financial results and trends of ISB reflect the de novo nature of its growth.
FCB is a mature banking institution that operates from a single charter from its branch network in North Carolina, Virginia and West Virginia. ISB began operations in 1997 and currently operates branches in Georgia, Florida, Texas, Arizona, California, New Mexico and Colorado under a federal thrift charter.
In the aggregate, FCB and its consolidated subsidiaries, which are integral to its branch operation, and ISB account for more than 90 percent of consolidated assets, revenues and net income. Other includes activities of the parent company, Neuse, Incorporated, a subsidiary that owns real property used in the banking operation and American Guaranty Insurance Corporation, a property insurance company.
The adjustments in the accompanying tables represent the elimination of the impact of certain inter-company transactions. The adjustments to interest income and interest expense neutralize the earnings and cost of inter-company borrowings. The adjustments to noninterest income and noninterest expense reflect the elimination of management fees and other services fees paid by one company to another within BancShares’ consolidated group.
Income (loss) before income taxes
Net income (loss)
Period-end assets
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Note C
Employee Benefits
BancShares recognized pension expense totaling $6,005 and $5,332, respectively, in the six-month periods ended June 30, 2004 and 2003. Pension expense is included as a component of employee benefit expense.
Components of Net Periodic Benefit Cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial loss
Net periodic benefit cost
The expected long-term rate of return on plan assets for 2004 is 8.50 percent.
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INTRODUCTION
Management’s discussion and analysis of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and Subsidiaries (BancShares). This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and related notes presented within this report. This discussion primarily focuses on our two banking subsidiaries: First-Citizens Bank & Trust Company (FCB), a North Carolina-chartered bank that operates branches in North Carolina, Virginia and West Virginia, and IronStone Bank (ISB), a federally-chartered thrift institution that operates offices in Georgia, Florida, Texas, Arizona, California, New Mexico and Colorado.
SUMMARY
BancShares’ earnings and cash flows are derived primarily from the commercial banking activities conducted by its banking subsidiaries, which include commercial and consumer lending, deposit and cash management products, cardholder and merchant services, trust and wealth management services as well as various other products and services typically associated with commercial banking. FCB and ISB gather interest-bearing and noninterest-bearing deposits from retail and commercial customers. BancShares and its subsidiaries also provide supplemental short-term and long-term funding through various non-deposit sources. The liquidity generated from these funding sources is invested in various interest-earning assets including loans, investment securities and overnight investments. In addition, funds are invested in bank premises as well as furniture and equipment used in the subsidiaries’ commercial banking business.
External factors influence customer demand for our deposit and loan products. During 2003, economic uncertainty in our primary market areas restrained customer demand for loan products. However, in early 2004, economic conditions have improved, causing robust demand for loan products. Additionally, the low level of interest rates has continued to affect the composition of our deposit base, as many customers have avoided low-rate time deposits and have instead invested in transaction, savings and money market accounts.
The general strength of the economy also influences the quality and collectibility of the loan portfolio, as consumer bankruptcy rates and business debt service levels tend to reflect the general economic cycle. Utilizing various asset–liability management and asset quality tools, we strive to minimize the potentially adverse financial impact of unforeseen and unfavorable economic trends and to take advantage of favorable economic conditions where appropriate.
Financial institutions frequently focus their strategic and operating emphasis on maximizing profitability, and therefore measure their relative success by reference to profitability measures such as return on average assets or return on average shareholders’ equity. BancShares’ return on average assets and return on average equity have historically compared unfavorably to the returns of similarly sized financial holding companies. We have placed significant emphasis upon asset quality, balance sheet liquidity and capital conservation, even when those priorities may be detrimental to current earnings.
Our strategic analysis and the competitive position of BancShares within the financial services industry indicate continued opportunities for growth and expansion. We operate in diverse and growing geographic markets and believe that through superior customer service and focused strategic emphasis, opportunities exist to increase earnings by attracting customers of other financial institutions. We seek opportunities to increase fee income in areas such as merchant processing, client bank services, factoring, insurance, cash management, wealth management and private banking services.
We focus substantial attention on the risks that can endanger our profitability and growth prospects. Such risks fall generally into categories of economic, industry systemic, competitive and regulatory. We view economic risk as the greatest exposure, since the potential impact is so great and
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we are unable to exercise any meaningful control over this area. Specific economic risks include recession, rapid movements in interest rates and significant increases in inflation expectations. Compared to our larger competitors, our relatively small asset size and our limited capital resources require significant management focus on economic risk.
Detailed information regarding the components of net income and other key financial data over the most recent five quarters is provided in Table 1. Tables 4 and 5 provide information on net interest income. Table 6 provides information related to asset quality.
Net income. BancShares realized a decrease in earnings during the second quarter of 2004 compared to the second quarter of 2003. Consolidated net income during the second quarter of 2004 was $15.9 million, compared to $20.8 million earned during the corresponding period of 2003, a $4.9 million or 23.6 percent reduction. Net income per share during the second quarter of 2004 totaled $1.52, compared to $1.98 during the second quarter of 2003. The annualized return on average assets was 0.50 percent for the second quarter of 2004 and 0.68 percent for the same period in 2003. The annualized return on average equity for the second quarter of 2004 was 6.11 percent compared to 8.41 percent during the second quarter of 2003.
For the first six months of 2004, BancShares recorded net income of $33.2 million, compared to $39.1 million earned during the first six months of 2003. Net income per share for the first six months of 2004 was $3.18, compared to $3.73 during the same period of 2003. On an annualized basis, BancShares returned 0.53 percent on average assets during the first six months of 2004 compared to 0.65 percent during the corresponding period of 2003. Annualized return on average equity for the first six months of 2004 was 6.42 percent compared to 8.02 percent during the same period of 2003.
The earnings reduction for the second quarter was the result of higher noninterest expense, higher provision for loan losses and lower noninterest income. While the increase in noninterest expense and the provision for loan losses are consistent with current trends, the second quarter reduction in noninterest income differs from the general improvement exhibited in recent quarters. When compared to the same period of the prior year, noninterest income for the second quarter declined due primarily to a $5.7 million gain on the sale of branch offices and a $1.1 million securities gain recorded during 2003. No such gains were recognized during the second quarter of 2004.
The decline in earnings for the first six months of 2004 resulted from higher noninterest expense and provision for loan losses, partially offset by marginally higher noninterest income and improved levels of net interest income. Noninterest expenses continue to grow, due in large part to the expansion of ISB into new markets through de novo branching. The provision for loan losses has been adversely impacted by higher net charge-offs and the rapid rate of loan growth. Noninterest income continues to benefit from increased cardholder and merchant services income, service charge income and trust income. After several quarters of declining net interest income, recent loan growth has been sufficient to offset the impact of low interest rates.
ISB reported a net loss of $1.6 million during the first six months of 2004, compared to a net loss of $507,000 reported during the same period of 2003. The unfavorable trend in net loss resulted from costs associated with both planned and actual new branch openings. Since its inception in 1997 ISB has generated a net loss of $25.0 million. Based on the magnitude of recent branch growth and plans for market expansion, ISB’s net losses will likely extend into the foreseeable future.
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(thousands,except pershare data andratios)
Second
Quarter
First
Fourth
Third
Summary of Operations
Net interest income-taxable equivalent
Selected Quarterly Averages
Investment securities
Interest-earning assets
Interest-bearing liabilities
Shareholders' equity
Shares outstanding
Selected Quarter-End Balances
Profitability Ratios (averages)
Rate of return (annualized) on:
Dividend payout ratio
Liquidity and Capital Ratios (averages)
Loans to deposits
Shareholders' equity to total assets
Time certificates of $100,000 or more to total deposits
Per Share of Stock
Book value at period end
Tangible book value at period end
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Shareholders’ Equity. BancShares and its banking subsidiaries continue to exceed all minimum regulatory capital requirements, and the financial institutions remain well-capitalized. In recent years, the de novo growth and expansion of ISB has consumed significant amounts of capital. BancShares infused $20.0 million into ISB during the first six months of 2004 to support its rapidly expanding balance sheet. We expect an additional $10.0 million will be infused into ISB prior to December 31, 2004. Through June 30, 2004, BancShares has provided $220.0 million in capitalization for ISB. BancShares’ prospective capacity to provide capital to support the growth and expansion of ISB is dependent upon FCB’s ability to return capital through dividends to BancShares.
INTEREST-EARNING ASSETS
Interest-earning assets include loans, investment securities and overnight investments, all of which reflect varying interest rates based on the risk level and maturity of the underlying asset. Accordingly, riskier investments typically carry a higher interest rate, but expose the investor to potentially higher levels of default. We have historically focused on maintaining high asset quality, which results in a loan portfolio subjected to strenuous underwriting and monitoring procedures. Our investment securities portfolio includes high-quality assets, primarily United States Treasury and government agency securities. Generally, the investment securities portfolio grows and shrinks based on loan and deposit trends. When deposit growth exceeds loan demand, we invest excess funds in the securities portfolio. Conversely, when loan demand exceeds deposit growth, we use proceeds from maturing securities to fund loan demand. Overnight investments are selectively made with other financial institutions that are within our risk tolerance.
Interest-earning assets for the second quarter of 2004 averaged $11.38 billion, an increase of $486.4 million or 4.5 percent from the second quarter of 2003. For the six months ended June 30, 2004, interest-earning assets averaged $11.26 billion, an increase of $441.6 million or 4.1 percent over the same period of 2003. These increases resulted from growth in the loan portfolio resulting from improving economic conditions. This growth was partially offset by reductions in investment securities.
Loans. At June 30, 2004 and 2003, gross loans totaled $8.99 billion and $7.86 billion, respectively. The $1.13 billion growth in loans from June 30, 2003 to June 30, 2004 represents a 14.4 percent annual growth rate. Table 2 details outstanding loans by type for the past five quarters.
During the twelve-month period from June 30, 2003 to June 30, 2004, loan demand has surged throughout both the retail and business segments of the loan portfolio. Commercial mortgage loans continued to display strong growth, increasing from $2.14 billion at June 30, 2003 to $2.64 billion at June 30, 2004, a $502.9 million or 23.5 percent growth rate. Revolving lines of credit secured by real estate increased $219.3 million or 15.0 percent over the twelve-month period, although second quarter 2004 originations declined from prior quarters. Consumer purpose loans increased $219.4 million or 18.7 percent primarily due to strong levels of sales finance activity. Construction and land development loans increased $88.1 million or 10.5 percent from June 30, 2003 to June 30, 2004. Commercial and industrial loans increased $76.6 million or 8.2 percent to $1.01 billion.
The growth among these loan categories was partially offset by a $24.1 million or 2.5 percent reduction in 1-4 family residential mortgage loans. Although origination activity remains strong, substantially all residential mortgage loans originated through our network are immediately sold to various correspondents. As a result, portfolio residential mortgage loans continue to decline, a trend we expect to continue during the second half of 2004.
Our recent growth through ISB has allowed us to mitigate our historic exposure to geographic concentration in North Carolina and Virginia. Although these markets have endured economic instability in the past, we are pleased with the diversification that we are beginning to realize by the growth of ISB. We are aware that, in the absence of rigorous underwriting and monitoring controls, rapid loan growth in new markets may present incremental lending risks. During the expansion of ISB into new markets, we have endeavored to ensure that such controls are functioning effectively and will continue to place emphasis upon maintaining strong lending standards in new markets.
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We are encouraged that as the economy continues to improve, loan demand among business customers strengthens. Consumer loan demand may be constrained due to soft labor growth in certain of our market areas. All loan projections are subject to change as a result of further economic deterioration or improvement. Loan projections are also dependent on interest rate movements, which are subject to the influence of inflation expectations and Federal Reserve actions.
(thousands)
Real estate:
Construction and land development
Mortgage:
1-4 family residential
Commercial
Revolving
Total real estate
Commercial and industrial
Consumer
Lease financing
Total loans
Investment securities. At June 30, 2004 and 2003, the investment portfolio totaled $2.04 billion and $2.48 billion, respectively. At December 31, 2003, the investment portfolio was $2.47 billion. The 17.5 percent decrease in the investment portfolio since December 31, 2003 resulted from the growth in loans outpacing the increase in deposits. Table 3 presents detailed information relating to the investment securities portfolio.
Investment securities held to maturity totaled $935.2 million at June 30, 2004, compared to $1.23 billion at December 31, 2003 and $1.60 billion at June 30, 2003. The reduction in investment securities held to maturity during late 2003 resulted from our decision to reinvest proceeds from maturing held-to-maturity securities in securities classified as available for sale. This redirection of the investment securities portfolio enhanced the overall liquidity of the balance sheet. The average maturity of the held-to-maturity portfolio has shortened from twelve months at June 30, 2003 to nine months at June 30, 2004. Securities that are classified as held-to-maturity reflect BancShares’ ability and positive intent to hold those investments until maturity.
Investment securities available for sale totaled $1.10 billion at June 30, 2004, compared to $1.24 billion at December 31, 2003 and $874.8 million at June 30, 2003. While the 2004 reduction reflects the use of proceeds from maturing securities to fund loan growth, the increase during 2003 resulted from the decision to invest in available-for-sale securities to enhance balance sheet liquidity. The average maturity of the U.S. Government securities component of available-for-sale securities
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Fair
Value
Average
Maturity
(Yrs./Mos.)
Taxable
Equivalent
Yield
Investment securities held to maturity:
U. S. Government:
Within one year
One to five years
Five to ten years
Ten to twenty years
Over twenty years
State, county and municipal:
Total investment securities held to maturity
Investment securities available for sale:
Marketable equity securities
Total investment securities available for sale
Total investment securities
Average maturity assumes callable securities mature on their earliest call date; yields are based on amortized cost; yields related to securities that are exempt from federal and/or state income taxes are stated on a taxable-equivalent basis assuming statutory rates of 35% for federal income tax purposes and 6.9% for state income taxes for all periods.
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increased from 10 months at June 30, 2003 to twenty months at June 30, 2004. Available-for-sale securities are reported at their aggregate fair value.
Investment securities averaged $2.15 billion during the second quarter of 2004, compared to $2.59 billion during the second quarter of 2003, a reduction of $442.4 million or 17.0 percent. Investment securities averaged $2.25 billion during the first six months of 2004, a $289.2 million or 11.4 percent reduction from the same period of 2003.
For both the quarter and the six-month period ended June 30, the reduction in average investment securities was caused by loan demand exceeding deposit growth rates. Sustained loan demand will likely result in reductions in investment securities during the remainder of 2004, as increases in deposit balances and proceeds from maturing securities will fund loan growth.
At June 30, 2004, gross unrealized losses within the investment securities portfolio totaled $22.0 million, compared to $6.5 million at December 31, 2003. Total unrealized losses include $19.5 million within the held-to-maturity portfolio and $2.5 million within the available-for-sale portfolio. The growth in unrealized losses resulted from interest rate increases during the second quarter, which have caused reductions in the fair value of fixed-rate securities. None of the unrealized losses relate to investment securities that are deemed to be other than temporarily impaired as of June 30, 2004.
Overnight investments. Overnight investments totaled $400.0 million at June 30, 2004, compared to $294.4 million at December 31, 2003 and $618.4 million at June 30, 2003. Overnight investments averaged $405.9 million during the second quarter of 2004, a reduction of $77.8 million or 16.1 percent from the second quarter of 2003. For the six-month periods ended June 30, overnight investments averaged $374.6 million and $552.5 million, respectively, for 2004 and 2003. The changes in overnight investments resulted from liquidity management decisions.
Income on Interest-Earning Assets. Interest income amounted to $124.7 million during the second quarter of 2004, a $4.5 million or 3.5 percent decrease from the second quarter of 2003. Despite a 4.5 percent growth in interest-earning assets, interest income declined as the taxable-equivalent yield on interest-earning assets declined 35 basis points from 4.77 percent in the second quarter of 2003 to 4.42 percent in the second quarter of 2004 as market interest rates continued to decline.
Loan interest income for the second quarter of 2004 was $111.8 million, a decrease of $387,000 or 0.3 percent from the second quarter of 2003, due to a loan yield reduction that more than offset the favorable impact of loan growth. The taxable-equivalent yield on loans declined 66 basis points from 5.77 percent to 5.11 percent from the second quarter of 2003 to the second quarter of 2004 due to downward repricing of variable rates loans and rate-induced refinance activity among fixed rate loans.
Within the investment securities portfolio, interest income was $11.9 million during the second quarter of 2004 compared to $15.6 million during the second quarter of 2003, a reduction of $3.7 million or 23.5 percent. The reduction in interest income resulted from lower average investment securities and a 17 basis point reduction in the taxable-equivalent yield. Average investment securities decreased $442.4 million or 17.0 percent from the second quarter of 2003 to the same period of 2004.
Overnight investments generated interest income of $954,000 during the second quarter of 2004, compared to $1.4 million during the same period of 2003. The reduction was the combined result of lower average investments and a 23 basis points yield reduction. Overnight investments returned 0.95 percent during the second quarter of 2004 compared to 1.18 percent during the same period of 2003. Average overnight investments decreased $77.8 million or 16.1 percent.
Interest income amounted to $248.4 million during the first six months of 2004, an $11.9 million or 4.6 percent decrease from the same period of 2003, the net result of an unfavorable rate variance and a favorable volume variance. The taxable-equivalent yield on interest-earning assets declined 41 basis points from 4.85 percent for the first six months of 2003 to 4.44 percent during the same period of 2004. Lower market interest rates during 2004 have contributed to the unfavorable rate variance. Average interest-earning assets increased $441.6 million or 4.1 percent.
For the six months ended June 30, 2004, loan interest income was $221.4 million, a decrease of $4.2 million or 1.9 percent from the same period of 2003. The decrease in interest income reflects the decline in loan yields, which more than offset the impact of loan growth. The taxable-equivalent loan yield was 5.16 percent during the first six months of 2004, compared to 5.89 percent during the same period of 2003.
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For the six months ended June 30, 2004, income earned on the investment securities portfolio amounted to $25.2 million, compared to $31.5 million during the same period of 2003, a decrease of $6.2 million or 19.9 percent. This decrease is the result of a 24 basis point decline in the taxable-equivalent yield, which fell from 2.50 percent in 2003 to 2.26 percent in 2004.
Interest earned on overnight investments totaled $1.8 million during the first six months of 2004 compared to $3.2 million during the same period of 2003, a $1.4 million or 44.1 percent reduction. This was the combined result of lower average overnight investments and a 21 basis point yield reduction.
INTEREST-BEARING LIABILITIES
Interest-bearing liabilities include interest-bearing deposits as well as short-term borrowings and long-term obligations. Deposits are our primary funding source, although we also utilize non-deposit borrowings to stabilize our liquidity base and, in some cases, to fulfill commercial customer requirements for cash management services. Certain of our long-term borrowings also provide capital strength under existing guidelines established by the Federal Reserve.
At June 30, 2004 and 2003, interest-bearing liabilities totaled $9.27 billion and $9.16 billion, respectively, compared to $9.25 billion as of December 31, 2003. During the second quarter of 2004, interest-bearing liabilities averaged $9.23 billion, an increase of $56.9 million or 0.6 percent from the second quarter of 2003. This increase resulted from growth in interest-bearing deposits and long-term obligations, which more than offset the impact of lower short-term borrowings.
Deposits. At June 30, 2004, total deposits were $10.96 billion, an increase of $403.4 million or 3.8 percent over June 30, 2003. Compared to the December 31, 2003 balance of $10.71 billion, total deposits have increased $250.7 million or 2.3 percent.
Interest-bearing deposits averaged $8.51 billion during the second quarter of 2004 compared to $8.46 billion during the second quarter of 2003, an increase of $48.2 million or 0.6 percent. Average Checking With Interest increased $142.6 million or 10.4 percent from the second quarter of 2003 to the second quarter of 2004. Average savings accounts increased $56.8 million from the second quarter of 2003 to the second quarter of 2004, an 8.2 percent increase. Average time deposits decreased $141.6 million or 3.7 percent between the two periods. Noninterest-bearing deposits averaged $2.33 billion during the second quarter of 2004, a strong 20.7 percent increase as compared to the second quarter of 2003.
For the first six months of 2004, interest-bearing deposits averaged $8.50 billion compared to $8.48 billion during the same period of 2003. This $21.0 million or 0.2 percent increase results from continued growth among Checking With Interest and savings accounts, offset by lower average time deposits.
For both the second quarter and the six-month periods ended June 30, 2004, when compared to the same period of the prior year, average balances of transaction and money market deposit accounts continue to grow. We attribute the ongoing run-off of time deposits to customer expectation of higher interest rates, and, until those rates begin to increase, time deposit balances will likely continue to erode.
Short-term borrowings. At June 30, 2004, short-term borrowings totaled $437.4 million compared to $430.2 million at December 31, 2003 and $499.6 million at June 30, 2003. For the quarters ended June 30, 2004 and 2003, short-term borrowings averaged $436.2 million and $461.6 million, respectively. The $25.4 million or 5.5 percent decline in short-term borrowings is the result of reductions in master notes and overnight repurchase obligations. Customer interest in these commercial cash management products has diminished due to the very low market rates of interest.
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Total interest-earning assets
Checking With Interest
Savings
Money market accounts
Time deposits
Total interest-bearing deposits
Federal funds purchased
Repurchase agreements
Master notes
Other short-term borrowings
Total interest-bearing liabilities
Interest rate spread
Net interest income and net yield on interest-earning assets
Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35% and a state income tax rate of 6.90% for each period. The taxable-equivalent adjustment was $276 and $258 for 2004 and 2003, respectively.
For the six month periods ended June 30, 2004 and 2003, short-term borrowings averaged $435.9 million and $445.1 million, respectively, a reduction of 2.1 percent primarily due to reduced demand for master notes and overnight repurchase obligations from commercial cash management customers.
Long-term obligations. At June 30, 2004 and 2003, long-term obligations totaled $286.7 million and $253.4 million, respectively. During the second quarter of 2004, long-term obligations averaged $287.6 million, compared to $253.4 million during the same period of 2003. For the six month periods ended June 30, 2004 and 2003, long-term obligations averaged $288.4 million and $253.4 million, respectively, an increase of 13.8 percent that primarily resulted from $25 million borrowed from the FHLB during the fourth quarter of 2003.
Expense on Interest-Bearing Liabilities. BancShares’ interest expense amounted to $31.1 million during the second quarter of 2004, an $8.4 million or 21.2 percent decrease from the second quarter of 2003. The lower interest expense was the result of falling market interest rates. The rate on interest-bearing liabilities was 1.36 percent during the second quarter of 2004 compared to 1.73 percent during the same period of 2003.
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Balance
Income/
Expense
Yield/
Rate
Change
Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35% and a state income tax rate of 6.90% for each period. The taxable-equivalent adjustment was $566 and $542 for 2004 and 2003, respectively.
For the year-to-date, interest expense was $62.3 million, compared to $81.7 million for the same period of 2003. The $19.3 million or 23.7 percent decrease results primarily from lower interest rates and a reduction in average time deposits. The rate on interest-bearing deposits declined from 1.66 percent during the first six months of 2004 to 1.19 percent for the same period of 2004, a 47 basis point reduction. The rate on time deposits fell 63 basis points from 2.79 percent to 2.16 percent and, when combined with the impact of the volume reduction, accounted for $14.2 million of the reduction in interest expense during the first six months of 2004. The rate on money market accounts fell 37 basis points, from 1.05 percent to 0.68 percent. Although money market accounts experienced an increase in volume during the first six months of 2004, total interest expense on these deposits declined $4.7 million.
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NET INTEREST INCOME
Net interest income totaled $93.5 million during the second quarter of 2004, an increase of $3.9 million or 4.3 percent from the $89.7 million recorded during the second quarter of 2003. The taxable-equivalent net yield on interest-earning assets was 3.32 percent for the second quarter of 2004, an increase of 1 basis point from the 3.31 percent reported for the second quarter of 2003. The growth in net interest income resulted from strong growth in the loan portfolio while the rate on interest-bearing liabilities decreased more than the yield on interest-earning assets.
Net interest income was $186.0 million and $178.6 million for the six-month periods ended June 30, 2004 and 2003, respectively. This represents an increase of $7.4 million or 4.2 percent. Consistent with the second quarter comparison, the year-to-date results demonstrate the impact of a favorable volume variance more than offsetting the impact of an unfavorable rate variance.
Despite the continuing pressure on net interest income resulting from historically low interest rates, our asset/liability management strategy continues to focus on maintaining high levels of balance sheet liquidity and managing our interest rate risk. We maintain portfolios of interest-earning assets and interest-bearing liabilities with maturities or repricing opportunities that will protect against wide interest rate fluctuations, thereby limiting, to the extent possible, the ultimate interest rate exposure. Interest rate derivative contracts are not used in managing interest rate risk. Management believes that the current balance of asset and liabilities are properly positioned to maximize net interest income for possible interest rate hikes in the future.
Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values or reduced net interest income in future periods. As of June 30, 2004, BancShares’ market risk profile has not changed significantly from December 31, 2003. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.
ASSET QUALITY
The maintenance of excellent asset quality is one of our primary areas of focus. Historically, we have dedicated significant resources to ensuring we are prudent in our lending practices. Accordingly, we have focused on asset quality as a key performance measure.
Nonperforming assets. At June 30, 2004, BancShares’ nonperforming assets, consisting of nonaccrual loans and other real estate, amounted to $24.0 million or 0.27 percent of gross loans plus foreclosed properties, compared to $24.1 million at December 31, 2003, and $25.6 million at June 30, 2003. Nonaccrual loans totaled $17.3 million at June 30, 2004, compared to $18.2 million at December 31, 2003 and $17.4 million at June 30, 2003. Other real estate totaled $6.6 million at June 30, 2004, compared to $5.9 million at December 31, 2003 and $8.1 million at June 30, 2003. We closely monitor nonperforming assets, taking necessary actions to minimize potential exposure.
Reserve for loan losses. We continuously analyze the growth and risk characteristics of the total loan portfolio under current economic conditions in order to evaluate the adequacy of the reserve for loan losses. Such factors as the financial condition of the borrower, fair market value of collateral and other considerations are recognized in estimating probable credit losses. At June 30, 2004, the reserve for loan losses amounted to $125.4 million or 1.39 percent of loans outstanding. This compares to $119.4 million or 1.43 percent at December 31, 2003, and $115.4 million or 1.47 percent at June 30, 2003.
The provision for loan losses charged to operations during the second quarter of 2004 was $9.9 million, compared to $7.2 million during the second quarter of 2003. For the six-month periods ended June 30, total provision for loan losses was $17.8 million for 2004 and $12.8 million for 2003. The $5.0 million increase primarily results from the higher net charge offs and increased provision due to rapid loan growth during 2004.
Net charge-offs for the three months ended June 30, 2004 totaled $6.5 million, compared to net charge-offs of $5.2 million during the same period of 2003. On an annualized basis, these net charge-offs represent 0.30 percent and 0.27 percent of average loans outstanding during the respective periods. Net charge-offs for the six-month period ended June 30, 2004 totaled $11.8 million, compared to $9.9 million during the same period of 2003. As a percentage of average loans outstanding, these losses represent 0.27 percent for 2004 and 0.26 for 2003 on an annualized basis. Gross charge-offs totaled $13.2 million and $11.4 million for the six-month periods ended June 30, 2004 and 2003 respectively.
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(thousands, except ratios)
Reserve balance at beginning of period
Acquired reserve
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Reserve balance at end of period
Historical Statistics
Average loans
Loans at period-end
Risk Elements
Nonaccrual loans
Other real estate
Total nonperforming assets
Accruing loans 90 days or more past due
Ratios
Net charge-offs (annualized) to average total loans
Reserve for loan losses to total loans at period-end
Nonperforming assets to total loans plus other real estate at period-end
We consider the established reserve adequate to absorb losses that relate to loans outstanding at June 30, 2004. While we use available information to establish provisions for loan losses, future additions to the reserve may be necessary based on changes in economic conditions or other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the reserve for loan losses. Such agencies may require the recognition of adjustments to the reserve based on their judgments of information available to them at the time of their examination.
NONINTEREST INCOME
The growth of noninterest income is essential to our ability to sustain adequate levels of profitability. The primary sources of noninterest income are service charges on deposit accounts, cardholder and merchant services income, various types of commission-based income including the sale of investments by our broker-dealer subsidiary, fees from processing services for client banks, mortgage income and various types of revenues derived from wealth management services. Noninterest income also includes gains and losses resulting from securities transactions as well as gains recognized from the sale of branch offices.
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During the first six months of 2004, noninterest income was $124.4 million, compared to $122.6 million during the same period of 2003. The $1.8 million or 1.5 percent increase was primarily due to growth in cardholder and merchant services income and service charges on deposit accounts. During the second quarter 2003, the sale of four branches generated a gain of $5.7 million. There was no branch sale activity during the first six months of 2004.
Cardholder and merchant services income increased $3.9 million or 14.8 percent for the first six months of 2004 when compared to the same period in 2003. Much of the increase results from higher transaction volume with our debit card product, which has contributed to growth in merchant income.
Service charges on deposit accounts increased $2.0 million or 5.4 percent during the first six months of 2004. Service charges benefited from higher levels of bad check fees. Fees from processing services increased $1.6 million from $10.2 million during the first six months of 2003 to $11.8 million earned during the first six months of 2004 due to higher transaction volume for client banks and a new fee schedule that was effective January 1, 2004.
Trust income contributed an additional $1.2 million during the first six months of 2004 compared to the same period of 2003. This increase represents a 15.4 percent increase over the same period of 2003 due to improved investment returns and increased sales activity during 2004. Additionally, we recorded securities gains of $1.9 million during the first six months of 2004, compared to $130,000 during the same period of 2003.
Partially offsetting the benefit of these increases, mortgage income decreased $3.9 million or 46.3 percent during the first six months of 2004. Refinance activity has slowed in the first half of 2004 due to higher mortgage interest rates, resulting in lower origination fee and service release income.
During the second quarter of 2004, noninterest income was $62.9 million, a decrease of $3.6 million or 5.5 percent, compared to the $66.6 million earned during the second quarter of 2003. The 2004 reduction results from the inclusion in the second quarter of 2003 of a $5.7 million gain recognized on the sale of branch offices and $1.1 million in securities gains. No such gains were recorded during the second quarter of 2004.
Cardholder and merchant services income increased $2.2 million or 15.5 percent during the second quarter of 2004 due to higher transaction volume and interchange fees. Service charges on deposits increased $1.1 million or 5.7 percent for the quarter due to higher bad check fees.
Fees from processing services increased $852,000 or 16.7 percent due to increased transaction volume for client banks as well as the new fee schedule effective January 1, 2004. ATM income increased $465,000 or 21.1 percent from 2003 to 2004 as FCB continues to enhance its ATM network. Mortgage income declined $2.1 million or 45.9 percent during the second quarter of 2004 as refinance activity slowed due to higher mortgage interest rates.
NONINTEREST EXPENSE
The primary components of noninterest expense are salaries and related employee benefit costs, occupancy costs related to branch offices and support facilities, and equipment costs related to branch offices and technology.
Noninterest expense was $240.2 million for the first six months of 2004, a 6.1 percent increase over the $226.5 million recorded during the same period of 2003. The $13.7 million increase in noninterest expense results from higher personnel and general operating costs. Salary expense increased $5.2 million during 2004 when compared to the same period of 2003. This 5.3 percent increase is primarily due to the growth in employee population required to staff new branch offices of ISB. Employee benefits expense increased $1.8 million or 7.6 percent during the first six months of 2004, compared to the corresponding period of 2003 due to higher health insurance costs and pension expense.
Occupancy costs increased $1.4 million or 6.6 percent during the first six months of 2004, the result of higher rent expense incurred by ISB. Equipment expense increased $976,000 or 4.0 percent from the second quarter of 2003 to the second quarter of 2004, due primarily to increases in hardware and software depreciation.
Other expenses increased $4.4 million or 7.3 percent during 2004 due to higher card processing costs, legal expense and non-credit charge-offs, partially offset by a favorable variance in net losses recognized from asset sales.
For the second quarter of 2004, noninterest expense totaled $121.3 million, a $5.8 million or 5.0 percent increase over the same period of 2003. Salary expense totaled $51.4 million during the
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second quarter of 2004, an increase of $2.2 million or 4.5 percent due to new associates hired to support the continued ISB expansion. Employee benefits expense increased $685,000 due to higher pension and health care costs.
INCOME TAXES
Income tax expense was $19.2 million during the first six months of 2004, compared to $22.8 million during the same period of 2003, a 15.8 percent decrease primarily due to lower pre-tax earnings. The effective tax rates for these periods were 36.7 percent and 36.9 percent, respectively. For the second quarters of 2004 and 2003, income tax expense was $9.3 million and $12.7 million, respectively. The effective tax rates were 37.0 percent and 37.9 percent for the respective periods.
LIQUIDITY
The investment portfolio is a primary source of liquidity, with available for sale securities and maturities of held-to-maturity securities structured to provide projected cash flows. Deposits generated throughout the branch network have enabled us to fund asset growth and maintain adequate levels of liquidity. In the event additional liquidity is needed, BancShares maintains sources for borrowed funds through federal funds lines of credit and other borrowing facilities including the Federal Home Loan Bank of Atlanta. Loan growth during the second quarter was funded primarily by maturities of investment securities. Deposits are expected to display seasonal patterns through the remainder of 2004, building in the third and fourth quarters to provide a portion of the required funding for anticipated loan growth.
SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position and exceeds all minimum regulatory capital requirements. At June 30, 2004 and 2003, the leverage capital ratio of BancShares was 9.37 percent and 9.33 percent, respectively, surpassing the minimum level of 3 percent. As a percentage of risk-adjusted assets, BancShares’ Tier 1 capital ratio was 12.25 percent at June 30, 2004, and 13.40 percent as of June 30, 2003. The minimum ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted capital ratio was 13.59 percent at June 30, 2004 and 14.73 percent as of June 30, 2003. The minimum total capital ratio is 8 percent. BancShares and each of its subsidiary banks meet the requirements for well-capitalized status established by their respective regulatory agencies.
SEGMENT REPORTING
BancShares conducts its banking operations through its two banking subsidiaries, FCB and ISB. Although FCB and ISB offer similar products and services to customers, each entity operates in distinct geographic markets and has separate management groups. We monitor growth and financial results in these institutions separately and, within each institution, by geographic segregation.
Although FCB has grown through acquisition in certain of its markets, throughout its history much of its expansion has been accomplished on a de novo basis. However, because of FCB’s size, market share and maturity as well as the current modest expansion of its branch network, the costs associated with de novo branching are not material to FCB’s financial performance. Since it first opened in 1997, ISB has followed a similar business model for growth and expansion. Yet, due to the large number of immature branch offices that have yet to attain sufficient size for profitability, the financial results and trends of ISB are significantly affected by its current and continuing growth. Each new market ISB enters creates additional operating costs that are typically not fully offset by operating revenues until the third year after initial opening. ISB’s rapid growth in new markets in recent years has continued to adversely impact its financial performance.
IronStone Bank. ISB’s total assets increased from $1.11 billion at June 30, 2003 to $1.33 billion at June 30, 2004, an increase of $212.4 million or 19.1 percent. This growth resulted from significantly higher levels of loans, funded by a growing deposit base and borrowed funds, generated by the expanding branch network. ISB recorded a net loss of $1.6 million during the first six months
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of 2004 compared to a net loss of $507,000 during the same period of 2003. This represents an unfavorable variance of $1.1 million, the result of ISB’s higher personnel and occupancy expenses and provision for loan losses.
ISB’s net interest income increased $2.8 million or 14.8 percent during the first six months of 2004, when compared to the same period of 2003, the result of balance sheet growth that more than offset the impact of falling interest rates. Provision for loan losses increased $1.0 million or 110.6 percent due to accelerated growth in the loan portfolio.
ISB’s noninterest income decreased $103,000 or 3.8 percent during the first six months of 2004, primarily the result of lower mortgage income. Noninterest expense increased $3.6 million or 17.3 percent during 2004. Higher personnel, occupancy and equipment costs reflect the impact of the expanded branch network, much of which relates to the expansion of ISB into new markets.
During 2004, ISB opened facilities in New Mexico and Colorado and has received approval to operate in Oregon and Washington. ISB continues to evaluate other markets for further expansion. As this growth continues, ISB will continue to incur incremental operating costs, particularly in the areas of personnel, occupancy and equipment. As a result of the de novo status of much of the ISB franchise and plans for continued expansion, ISB’s net losses will likely extend into the foreseeable future.
First Citizens Bank. FCB’s total assets increased from $11.16 billion at June 30, 2003 to $11.41 billion at June 30, 2004, an increase of $251.3 million or 2.3 percent. FCB recorded net income of $40.2 million during the first six months of 2004 compared to $45.8 million during the same period of 2003. This represents a $5.6 million or 12.2 percent reduction in net income.
FCB’s net interest income increased $5.4 million or 3.2 percent during the first six months of 2004, the result of strong loan growth. Provision for loan losses increased $4.0 million or 33.6 percent during 2004 due to higher net charge-offs and loan growth.
FCB’s noninterest income increased $1.3 million or 1.1 percent during the first six months of 2004, the result of higher cardholder and merchant service income, service charges on deposits and trust income offset largely by substantially lower levels of mortgage income.
Noninterest expense increased $11.4 million or 5.5 percent during the first six months of 2004, primarily due to higher personnel and credit card processing costs.
CURRENT ACCOUNTING AND REGULATORY ISSUES
In December 2003, the FASB issued SFAS No. 132 (revised), Employers’ Disclosures about Pensions and Other Postretirement Benefits (Statement 132). Statement 132 prescribes employers’ disclosures about pension plans and other postretirement benefit plans, but does not change the measurement or recognition of those plans. Statement 132 retains and revises the disclosure requirements contained in the original statement. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. Statement 132 is effective for fiscal years ending after December 15, 2003. The disclosures made elsewhere in this report conform to the requirements of Statement 132.
During March 2004, the SEC issued Staff Accounting Bulletin 105 Application of Accounting Principles to Loan Commitments (SAB 105). SAB 105 addresses the accounting for loan commitments and provides that the required fair value measurement include only differences between the guaranteed interest rate in the loan commitment and a market interest rate excluding any expected future cash flows related to the customer relationship or loan servicing. SAB 105 applies to mortgage loan commitments accounted for as derivatives and entered into after March 31, 2004. Substantially all of our mortgage loan commitments are based on rates provided by third party correspondents, who have agreed to purchase resulting loans at those rates. As a result, we are protected from interest rate risk, and the adoption of SAB 105 will not have a material impact on our consolidated financial statements.
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Management is not aware of any current recommendations by regulatory authorities that, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital ratios or results of operations.
FORWARD-LOOKING STATEMENTS
This discussion may contain statements that could be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” or other statements concerning opinions or judgments of BancShares and its management about future events. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of BancShares’ customers, actions of government regulators, the level of market interest rates, and general economic conditions.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 4, 2004
FIRST CITIZENS BANCSHARES, INC.
(Registrant)
By:
/s/ Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer
and Chief Financial Officer
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